{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

lecture 21 - Business Finance Lecture 21 Review of the...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
112 Business Finance Lecture 21 Review of the Previous Lecture Bond Indenture Terms of a bonds Security Seniority Call provision Repayment Protective covenants Bond Ratings Topics under Discussion Different Type of bonds Government Bonds Zero Coupon Bonds Floating rate Bonds Other Types Inflation and Returns The Fisher Effect Determinants of Bond Yields Different Types of Bonds Government Bonds Zero Coupon Bonds Floating-Rate Bonds Other Bonds Government Bonds When the government wishes to borrow money for more than one year, it sells what are known as treasury notes and bonds (mostly in the form of ordinary coupon bond) to the public. Govt. treasury issues have no default risk These issues are exempted from income taxes Zero Coupon Bonds A bond that pays no coupon at all and are offered at a price that is much lower than its stated value. Suppose N company issues a $1000 face value, 5 year zero coupon bond.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
113 Initial price is set at $497, yielding 15% to maturity Total interest paid over the life of the bond is $1000 – 497 = $503 Zero Coupon Bonds For tax purposes, the issuer of a zero coupon bond deducts interest every year even though no interest is actually paid.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern